Property/Casualty Focus

The Changing Face of Benefits and the Employer-Employee Relationship

Benefits are a critical component of the employer-employee relationship. They not only serve as a recruitment and retention tool, but they also can influence employee morale and lifestyle decisions. Escalating costs of health care, under-funded retirement programs, and a generally stagnant economy in the last few years have placed significant economic strain on organizations. Finding a balance between these financial challenges, while still maintaining quality benefits has been a concern for organizations across the country. This article highlights how employers in North and South Carolina are responding to this push-and-pull scenario and how trends in these states reflect more universal changes in the roles historically played by the employer and employee.

What Benefits Do Employees Value in the U.S.?

Despite an ever-changing benefits landscape during the past 10 years, rankings of what employees find important have been surprisingly stable. The Aon Consulting 2004 United States @Work® research indicates medical insurance has ranked first over the past nine years and its importance shows no sign of waning. Retirement savings plans and employer-paid pension plans rank third and fourth and have also remained stable in importance, particularly in the last six years. (Paid vacation time and holidays rank second.)

The delivery of these core benefits has become almost unaffordable for many employers. For several years, employers have attempted to maintain pension plans and absorb health care cost increases without passing additional expenses along to employees. Recently, however, employers have been forced to share the escalating costs with employees in order to mitigate loss to the organization’s bottom line. This process has produced many new methods to help contain costs and, for the first time, has engaged employees as active participants in the outcome of their benefit programs.

Cost-Saving Trends

In 2004, Aon Consulting conducted a survey of employers in the Carolinas to identify cost-saving trends and plan design changes, then analyzed those trends. The survey represented 84 respondents, primarily organizations with less than 5,000 employees, most from North Carolina, and 40 percent from manufacturing and health care industries. Aon has already used the survey results both as a benchmarking tool to help clients assess how their plans and costs compare to peer companies, and as a foundation for implementing cost control strategies and plan design changes. While the findings from this survey reflect local benefit trends, they also serve to validate what we are seeing on a national level.

Health Care Findings

In the analysis of health care trends, the Carolinas survey results confirm a shift away from medical plans that require a medical “gatekeeper,” and a move toward those plans that emphasize the role of the employee as consumer. Employers in the Carolinas have looked beyond the typical increase of employee co-insurance or plan deductibles and co-payments to more employee-focused lifestyle solutions. Recognizing that a large portion of health care dollars are spent on participants with chronic diseases, half of the respondents have implemented disease management programs, with another 15 percent considering similar initiatives. In addition, to encourage employees to live healthy lifestyles, approximately 25 percent of survey respondents have implemented health-risk appraisals, smoking cessation and weight loss programs, and web-based health care management tools.

In addition to implementing design changes to traditional plans, the Carolinas’ employers are in the forefront of embracing consumer-directed health plans (CDHPs) as a way to help control costs and promote employee consumerism and self-management. As of 2004, 6 percent of survey respondents had implemented CDHPs, and another 24 percent were considering implementing them. CDHPs can enhance overall health care quality, encourage a more effective use of available resources, and ultimately, stabilize costs. However, Aon’s United States @Work® research indicates that only some employees are willing to become better consumers of health care services. To overcome the challenges of making CDHPs a success, employers must develop plans that are targeted to employee needs while addressing issues such as cost and the ease of effectively managing their health care.

Retirement Findings

For most employees, having, or working toward, an adequate retirement income is a top priority. In the past several years, many organizations have frozen long-standing pension plans, and have moved to offering only a defined contribution plan. With defined contribution plans, employees have more responsibility in choosing their investment options and need to be educated on how much they must save each pay period to be on track for retirement. According to the Carolinas survey, defined contribution plans are the most prevalent retirement plans in the two states, although 36 percent of respondents still offer a defined benefit plan as well. With either plan, investment education for employees is crucial. According to a recent nationwide study conducted by Aon Consulting and Georgia State University, 75 percent of employees would embrace and act on retirement planning guidance if it were personalized.

Changing Role of Employees

Both employers and employees recognize the value of medical and retirement plans and, in partnership, can work out a model that meets the workers’ needs while also benefiting the organization. As we continue to look for more solutions to the financial challenges of providing quality benefit plans, the role of the employee as a consumer will only become greater. ?

For more details on the study … United States @Work,® Ninth Edition, A Focus on Benefits and Compensation, and the 2004 Carolinas Benefits Trends Survey can be found at: www.aon.com/hcc. For more information on this topic, contact Aon Consulting at (800) 438-6487.

Posted: Monday, October 17, 2005 12:00:00 AM. Modified: Monday, October 17, 2005 3:14:30 PM.

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